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Bridging the Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion?

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  • Verdolini, Elena
  • Vona, Francesco
  • Popp, David

Abstract

The diffusion of renewable energy in the power system implies high supply variability. Lacking economically viable storage options, renewable energy integration has so far been possible thanks to the presence of fast-reacting mid-merit fossil-based technologies, which act as back-up capacity. This paper discusses the role of fossil-based power generation technologies in supporting renewable energy investments. We study the deployment of these two technologies conditional on all other drivers in 26 OECD countries between 1990 and 2013. We show that a 1% percent increase in the share of fast-reacting fossil generation capacity is associated with a 0.88% percent increase in renewable in the long run. These results are robust to various modifications in our empirical strategy, and most notably to the use of system-GMM techniques to account for the interdependence of renewable and fast-reacting fossil investment decisions. Our analysis points to the substantial indirect costs of renewable energy integration and highlights the complementarity of investments in different generation technologies for a successful decarbonization process.

Suggested Citation

  • Verdolini, Elena & Vona, Francesco & Popp, David, 2016. "Bridging the Gap: Do Fast Reacting Fossil Technologies Facilitate Renewable Energy Diffusion?," MITP: Mitigation, Innovation and Transformation Pathways 244327, Fondazione Eni Enrico Mattei (FEEM).
  • Handle: RePEc:ags:feemmi:244327
    DOI: 10.22004/ag.econ.244327
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    File URL: https://ageconsearch.umn.edu/record/244327/files/NDL2016-051.pdf
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    Cited by:

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    2. Lionel Nesta & Elena Verdolini & Francesco Vona, 2018. "Threshold Policy Effects and Directed Technical Change in Energy Innovation," Documents de Travail de l'OFCE 2018-05, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Fard, Amirhossein & Javadi, Siamak & Kim, Incheol, 2020. "Environmental regulation and the cost of bank loans: International evidence," Journal of Financial Stability, Elsevier, vol. 51(C).
    4. Kamel Almutairi & Greg Thoma & Alvaro Durand-Morat, 2018. "Ex-Ante Analysis of Economic, Social and Environmental Impacts of Large-Scale Renewable and Nuclear Energy Targets for Global Electricity Generation by 2030," Sustainability, MDPI, Open Access Journal, vol. 10(8), pages 1-25, August.
    5. Li Li & Junqi Liu & Lei Zhu, 2020. "Dynamics of energy technology diffusion under uncertainty," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 36(5), pages 795-808, September.
    6. Bento, Antonio M. & Garg, Teevrat & Kaffine, Daniel, 2018. "Emissions reductions or green booms? General equilibrium effects of a renewable portfolio standard," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 78-100.
    7. Tadeusz Skoczkowski & Sławomir Bielecki & Joanna Wojtyńska, 2019. "Long-Term Projection of Renewable Energy Technology Diffusion," Energies, MDPI, Open Access Journal, vol. 12(22), pages 1-24, November.
    8. Abdulla, A. & Vaishnav, P. & Sergi, B. & Victor, D.G., 2019. "Limits to deployment of nuclear power for decarbonization: Insights from public opinion," Energy Policy, Elsevier, vol. 129(C), pages 1339-1346.
    9. Conti, C. & Mancusi, M.L. & Sanna-Randaccio, F. & Sestini, R. & Verdolini, E., 2018. "Transition towards a green economy in Europe: Innovation and knowledge integration in the renewable energy sector," Research Policy, Elsevier, vol. 47(10), pages 1996-2009.
    10. Lucas Eder & Marko Ban & Gerhard Pirker & Milan Vujanovic & Peter Priesching & Andreas Wimmer, 2018. "Development and Validation of 3D-CFD Injection and Combustion Models for Dual Fuel Combustion in Diesel Ignited Large Gas Engines," Energies, MDPI, Open Access Journal, vol. 11(3), pages 1-23, March.
    11. Li, Jianglong & Huang, Jiashun, 2020. "The expansion of China's solar energy: Challenges and policy options," Renewable and Sustainable Energy Reviews, Elsevier, vol. 132(C).
    12. Kim, Haein & Du, Xiaodong & Johnston, Craig, 2018. "Transition of Electricity System towards Decarbonization: The Role of Biomass," 2018 Annual Meeting, August 5-7, Washington, D.C. 274451, Agricultural and Applied Economics Association.
    13. Elena Verdolini & Valentina Bosetti, 2017. "Environmental Policy and the International Diffusion of Cleaner Energy Technologies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(3), pages 497-536, March.
    14. Lionel Nesta & Elena Verdolini & Francesco Vona, 2018. "Threshold Policy Effects and Directed Technical Change in Energy Innovation," GREDEG Working Papers 2018-01, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    15. Nicolas Arregui & Ian Parry, 2021. "Reconsidering Climate Mitigation Policy in the UK," CESifo Working Paper Series 8920, CESifo.
    16. Yongchao Zeng & Peiwu Dong & Yingying Shi & Yang Li, 2018. "On the Disruptive Innovation Strategy of Renewable Energy Technology Diffusion: An Agent-Based Model," Energies, MDPI, Open Access Journal, vol. 11(11), pages 1-21, November.
    17. Nicoletta Batini & Ian Parry & Philippe Wingender, 2021. "Climate Mitigation Policy in Denmark: A Prototype for Other Countries," CESifo Working Paper Series 8895, CESifo.
    18. Yanbing Mao & Kui Liu & Jizhi Zhou, 2019. "Evolution of Green Industrial Growth between Europe and China based on the Energy Consumption Model," Sustainability, MDPI, Open Access Journal, vol. 11(24), pages 1-15, December.

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    More about this item

    Keywords

    Research and Development/Tech Change/Emerging Technologies;

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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